UK Gilts and the Bank of England — 2026-09-29
The UK paid its highest 10-year auction yield since 1999 on 29 September as investors demand extra premium for persistent inflation and spending plans ahead of next month's budget. Yields eased across the curve late in the day as oil and gas prices hit fresh lows, offering brief relief. With borrowing already running ahead of forecast, Chancellor John Healey's October budget is increasingly constrained.
UK Gilts and the Bank of England — 2026-09-29
Top developments
10-year auction cleared at highest yield since 1999
The UK government on 29 September sold 10-year debt at the highest average yield for a 10-year auction since 1999, as investors demand additional compensation for persistent inflation and the prospect of spending increases in the Budget expected next month. The result underscores how the steep run-up in funding costs directly raises the upfront cost of government investment and limits Healey's room for manoeuvre.
Gilts rally late as energy prices sink
Later on 29 September, gilts extended gains across the curve, with benchmark 10-year yields almost 7bps lower as oil and natural gas prices fell to new daily lows — moves tied to reports EU officials do not expect the US to ban diesel exports, and to Qatar's meetings with the US and Iran. Energy-driven inflation risk is the key variable watchers cite for the gilt market right now.
BoE deputy governor flags rate-rise risk on energy prices
On 24 September, a Bank of England deputy governor said a UK interest rate rise is "increasingly likely" given risks from high energy prices, as global bond markets sold off — the US 30-year yield hit its highest since 2004 and UK borrowing costs climbed toward 19-year highs before the budget.
Banks exploit BoE repo for gilt carry
London banks are funding gilt purchases via the BoE's short-term repo, capturing roughly 1.6 percentage points of carry as 10-year yields outpace the 3.75% policy rate; repo usage has hit £129bn. The dynamic shows how the BoE's own facilities are smoothing absorption of new supply — but also how rate-vs-yield spreads are shaping demand
August borrowing overshoots
The ONS reported that the government borrowed more than expected in August, pushing the financial-year deficit to £77.3bn — above official forecasts — tightening the fiscal backdrop ahead of Healey's first budget at the end of October
Local view
UK live-blog coverage on 29 September framed the 10-year auction as a stark signal of the "tricky backdrop" facing the Chancellor, with borrowing costs near multi-decade highs just before the budget. French-language commentary noted markets are increasingly pricing BoE hikes, with BofA forecasting two increases — to 4.25% by February — on the back of 3.1% inflation and rising energy prices. German FX coverage on 28 September reported sterling firming (GBP/USD ~1.3252, +0.18%) even as US yields rose, as bets on BoE rate increases build
Context & numbers
- Bank Rate stands at 3.75% after the MPC's 18 September 6–3 vote to hold; QT unwinds at an annual average pace of £46bn to 2034, with long-dated gilt sales halted
- FY-to-date borrowing: £77.3bn, above OBR forecast, after August's overshoot
- BoE short-term repo usage: £129bn, with ~1.6ppt carry on gilt-funded positions
- Earlier this month the DMO sold £4.25bn of 30-year gilts at a record 5.8168% yield with orders above £87bn
On the radar
- The DMO auctioned £4,750m of 4⅝% Treasury Gilt 2032 on 22 September; check the current financing remit for upcoming auction dates
- An auction of £4.25bn of 2036 gilts was announced this month
- The budget is due at the end of October — watch whether single-set OBR forecast changes (reported 15 September) alter gilt-market reaction dynamics
- Energy prices are the swing factor: the deputy governor explicitly tied rate-rise odds to energy costs
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
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